Hong Kong should focus its fight on the tycoon economy

Hong Kong stepped back from the brink on Friday night, when chief executive CY Leung belatedly authorised a senior official to “hold talks” with protesters and those same protesters decided, for now, not to enter government buildings. It was a fortunate outcome. Beijing would characterise the occupation of official property as an attack on the Chinese state.

What Hong Kong needs is not a strategy that backs Xi Jinping, the Chinese president, into a corner, but one that resonates with his own mindset. This is why the protesters should refocus on Hong Kong’s tycoon economy, and the anti-competitive, anti-consumer arrangements that define it. You may think,like the Heritage Foundation, that Hong Kong is a free market. However, except for external trade, it is not. Instead it is what one of the richest men in the city once described to me as “a nice bowl of fish soup”. That soup is fed to the few, making ordinary people poorer, stoking resentment, and indirectly contributing to acute pollution.

Cartels are everywhere in Hong Kong. Supermarkets are a duopoly, one whose pricing power allows the chains to charge higher prices for the same products in some of Hong Kong’s most deprived areas. Drug stores are a duopoly. Buses are a cartel: high-priced, mostly cash-only, running shoddy, dirty diesel vehicles with drivers who earn a pittance. Electricity is provided by two, expensive monopolies that handle everything from generation to distribution, one on Hong Kong island and the other in Kowloon. The container ports are an oligopoly, with the world’s highest handling charges. Yet they will not supply onshore electricity to vessels, which must instead run diesel generators that pollute the city air.

The biggest stitch-up remains the lousy construction standards and sky-high costs in a residential property market dominated by the “Four Families”, which in the 1990s were estimated to be selling property for between two and four times what it cost to develop.

You may think of the territory as a free market but, except for external trade, it is not

Add in the jiggery-pokery of a Boys’ Own stock market with 1970s-style governance, and a taxation system that tycoons circumvent by taking out their money through tax-free dividends, and you begin to get the picture.

Hong Kong has had a Competition Ordinance and a Competition Commission since 2012. But so far nothing has changed. In a striking contrast with mainland China, where the Communist party after 1989 first increased transfer payments to the urban poor, and then increased transfers and cut taxes for the rural poor in the 2000s, the Hong Kong government lets a colonial rentier economy carry merrily on.

Mr Xi launched his new administration with not only a brutal anti-corruption campaign, but also an anti-monopoly drive. Unfortunately he seems unaware that Hong Kong is at least as rigged as the mainland.

So here is a plan. Speak to Mr Xi in terms he understands. Refocus the protests on the cartels. I am no protester, but it is not hard to think of peaceful tactics that would be difficult for the tycoons to ignore as they sweep into their basement car parks and ascend in private elevators to their penthouse offices. Where possible, boycott the cartels.

Would this be the end for the tycoons? Not at all. In my experience they are people of extraordinary entrepreneurial acumen. Like all of us, they enjoy a capacious free lunch. But if that is taken away they will adjust and add more value to the economy by doing so.

It is time for Hong Kong to work for the majority. If the protesters make Mr Xi understand the economic problem, it becomes easier to compromise on the politics – probably with a more open nomination process in 2022. I hold, perhaps wrongly, that Beijing’s intransigence is born of ignorance, not malice.

The writer is author of ‘How Asia Works: success and failure in the world’s most dynamic region’

More:

This just went up from Han Donfang. Very much worth a read. The lead explains who he is if you do not know.

And here is a nice piece from The Age about CY Leung trousering US$7m during the sale of his insolvent firm. Now that is leadership.

Like this:

It turns out to be necessary to do one more week in Cambridge, wandering the towers of the gargantuan University Library and photocopying a 10-centimetre wedge of research material, which I now know is close to the maximum that my back-pack can carry; it has to be over a thousand pages, though I don’t want to think about this because I have to read them.

The week gets off to a good start with breakfast with Tim Clissold, author of the excellent Mr China, the stranger-than-fiction tale of investing several hundred million dollars in China in the mid-1990s. Tim trained as an accountant, then learned Chinese, then teamed up with a high-flying American investment banker who had raised (what was) the single biggest fund for buying businesses in the Middle Kingdom. I wrote about this in The China Dream, but Tim’s warts-and-all inside story turned out to be perhaps the best insider tale of China business that has yet been written. And in the meantime, he drew a good salary, invested wisely, went on to do a stint of investment banking with Goldman Sachs, and then launched his own entrepreneurial investment career buying and turning around small-ish industrial businesses. I live and learn.

For me, the remarkable thing about Tim is his ability to see the most outrageous, grasping, brazen scams as intellectual curiosities. In his first career in China he was threatened, kidnapped and daily deceived. His response was that of an astute provincial accountant confronted by a loutish child on a bus: faint bemusement and a simple determination to deal with the situtation, with or without the conductor’s help. He is very good at seeing the other person’s point of view; but also rather principled.

Tim’s latest adventure is carbon trading in China; he maintains an office of about 20 people. It is, he says, at least as scurrilous as anything he has dealt with before and more than likely the basis of a new book. Pay-offs, forged signatures, phantom projects — all are par for the course in securing cash for supposed pollution reduction under the UN-sponsored global carbon trading scheme. The evening before we meet he had dinner with one of the top executives at China’s largest thermal power firm whose (almost certainly) forged signature, Tim gleefully observes, has been attached to a deal he is currently reviewing.

The Clissolds have moved back to the UK from China, although Tim still spends much of his time there. In his own moment of weakness, he bought a large pile in Richmond in North Yorkshire, only to find it infested with rats apparently immune to all known poisons. The family moved out and were surprised to find another family of expats from the East willing to buy the rodent colony. The Clissolds have reined in their delusions of grandeur and now lead a more modest life amid the bizarre sociology of North Yorkshire: inbred RangeRover driving eejits on the one hand, a thankless rural proletariat on the other, nothing in the middle. Tim takes modest comfort from his local status as the stand-out eccentric. He paces the town with a dog called xiong xiong which, having been brought back from Beijing, responds only to commands in Chinese. The scene he describes when barking commands at this dog in a local shop or pubs is what you would expect.

Clissold tips me off to interesting goings on in the world of ultra super critical boiler technology and, thus enthused, I read three of the best PhD theses my supervisor has seen (trying to figure out what I am supposed to be doing) and copy the aforementioned chunk of clever scribblings. When I take the early Friday flight back to Perugia after four days full on in Cambridge, it is one of the rare times going back to Italy that I am not quite sure what the point is: for a moment, England (and abroad) seems terribly serious and interesting and grown-up by comparison. I supposed this is the conclusion that thousands of Italians who are now leaving to work overseas have reached.

Landing in Perugia, I am exhausted. This is the problem with doing four 12-hour days; I cannot be productive for a fifth. Also, it seems, I am on the wrong side of the plane. Instead of one of the most beautiful airports in the world, I see only the capannone — the concrete industrial blocks — of the Tiber valley. What, as one Italian friend asks, is going on with all these new structures in an economy that is currently shrinking more than the UK’s and at the best of times barely grows?

I decide to drive up to Moravola, which as I said before is the best restoration project I have seen in Italy, and get in the way of Seonaid and Chris. They are working like lunatics, trying to run their boutique hotel themselves while guest numbers build up. This appears to involve a 5am to midnight shift, seven days a week, but they remain in good humour. We chat in the kitchen and are soon joined by a charming, designer Swiss couple. These are the kind of clients you want at this stage: relaxed, appreciative of the extraordinary quality of the project and unworried by somewhat slow service as Moravola builds up its business and hence its staff. We set about a bottle of white and talk about Europe, Italians and children. Looking at the surroundings and at Moravola, the Swiss wistfully conjecture how nice it would be if they had a place in the Umbrian sun themselves. Of course they don’t know how much work was involved and how unbelievably expensive the project would have been if Chris, a trained Norman Foster architect, hadn’t become a builder, fabricator and carpenter and done much of the construction work himself. After six or more years he has even acquired a sort of idealised builder physique. Not that the wife is complaining.

Seonaid, on a topic close to my own heart, causes much mirth by relating a recent exchange with a Danish architect who is using Leo Petturiti as his geometra for a client project in the Niccone valley. According to the Dane, the clients are not entirely convinced that Leo ‘gets’ their project vision. So the Dane gamely suggested to Seonaid that he bring the scrofulous one up to Moravola to give him a few ideas about quality restoration work. Large mistake. Unknown to this Scandinavian, Seonaid has already had her fill of Little Leo. When she and Chris first came to Italy to look for a property they wanted to buy a ruin on the west side of the Tiber that was being handled by Petturiti and James Stephens. They agreed a price, signed a contract, and made the compromesso downpayment. Deal done. Driving back to the UK, however, they got call from Stephens’ office to say they couldn’t actually have the property unless they paid a lot more money. Petturiti and Fat Boy had gotten a better offer. To cut a long story short, the illegality of what the agents did was so cut and dried that under threat of legal action Seonaid and Chris were eventually compensated. But it tells you plenty about the way certain people do business. And so when the Dane mentioned bringing Leo up, the response from Seonaid was that Leo will not set foot on her property so long as she breathes.

Italians in central Italy, I have been thinking, look ever more tawdry, even dowdy in their fashion choices.

Is this because current, ‘youth’ fashion is tawdry? Trousers hanging off one’s arse; shirts with gormless, nonsensical English words on them – as I write I am looking at someone with ‘wool’ emblazoned on one side of his chest and ‘rich’ on the other; all set off with ridiculous gold or silver trainers.

Or is it that I have become aware of the tendency of Italians, with their reflexive herd instinct in matters superficial (as opposed to wars), to fall off the edge of the fashion cliff? The example par excellence of recent years is their collective capacity to wear more and more stupid sunglasses. Look at me, cara! I look like an ant. And it only cost me Euro200! No, look at me! I have one-piece wrap-around shades the width of a small road. No, no, look at me! I have the name of a company written in diamante down both sides of my head and it only cost me Euro300!

Or is it that after 20 years of on-again-off-again economic crisis and negligible productivity gains, Italians look more crappy because they are simply running out of money?

Despite the general modish malaise, there is in Citta di Castello (and doubtless in every other central Italian town of similar scale) one place where you will still see people dressed beautifully. It is the Tribunale, as I was reminded on a recent visit.

The local magistracy has moved to refurbished premises between Castello’s twin central squares. The improved setting only serves to point up the exquisite sartorial choices of the assembled lawyers and their magistrate peers: behold the delightfully tailored skirts; wonder at the aggressively fashionable yet sufficiently formal trousers; marvel at the cleverly-fitted, nipped-and-tucked jackets; the shoes, of course, go without saying.

It is all too easy to forget amid the sartorial ecstasy that one does not only go to a courtroom for a fashion show. Indeed I did not on this occasion. I was there for the latest round in our epic (just the eight years so far) case against James Fat Boy Stephens, his scrofulous geometra sidekick, and their Neapolitan builder friends, who at the end of the decade before this one left us with a roof that leaked in 12 places. A naïve person might think it a relatively straightforward case. As I said, a naïve person…

For those who have not had the pleasure, the experience of an Italian court is not unlike an Italian church service. People wander in and out at will, talking somewhat quietly and respectfully, but without – if truth be told – ever really quite believing in the institution.

On arrival on this occasion, it looked like standard fare. The magistrate dealing with whoever pushed themselves gently to the front of the queue. The magistrate wholly unable to remember details of specific cases — not surprising when hearings last about an hour and the gap between them is about a year. The lawyer of one of the counterparties failing to show up. Our lawyer regarding this as entirely reasonable – the other lawyer is, after all, ‘a colleague’. And lots and lots and lots of hanging around.

But it was not standard fare this time. Just when the presiding (honorary) magistrate was expected to say that she was accepting no further evidence and would now make a decision in the case, it was announced that Castello’s senior magistrate – the one who is togato (who’s got, at least rhetorically, the ‘toga’ of the career judge) – is personally taking over all cases dating from 2002 and earlier in order to clear them up. This has a strong whiff, in the contemporary political climate, of Berlusconi-goes-to-Naples-and-sorts-out-the-rubbish-in-five-minutes about it. And it’s a bit bizarre coming just when the sitting magistrate was (in theory) about to be forced to make up her mind anyway. But there is nothing we can do. We must go with the spettacolo, return in a couple of weeks and see what the beautifully-dressed ones have in store for us.

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